Prudential to demerge UK & Europe arm and sell £12bn UK annuity portfolio

Mike Wells

Shares of Prudential plc (PRU.L) were gaining around 5 percent in London trading after the UK-based financial services group reported Wednesday higher profit in its fiscal 2017 with increased premiums and strong growth in Asia.

James Mullins Partner and Head of Risk Transfer Solutions at Hymans Robertson commented on the transaction, "Today's announcement that £12 billion of Prudential's existing annuity portfolio will transfer to Rothesay Life, combined with the recent news that Phoenix is taking on Standard Life's annuity portfolio means that the total value of annuity liabilities taken on by the eight insurers now active in the buy-in and buy-out market is expected to be around £40 billion in 2018, before allowing for any further consolidation of insurer annuity business".

Mike Wells, group chief executive, commented: "Our businesses share common heritage, values and goal".

Prudential says the demerger will result in two separately-listed companies, "each with its own distinct investment prospects".

The transaction covers an annuity book containing roughly 400,000 policyholders, making this the largest transaction of its kind in the UK.

The move was made after "a rigorous review" by the board, which concluded it is in the best interest of the group to operate as two separately listed firms and allow each other to focus on their individual strategies, said Paul Manduca, Prudential's chairman. John Foley, who now heads up the M&G Prudential division, will steer that business through the demerger.

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In line with the demerger, Prudential also announced on Wednesday that M&G Prudential has agreed to sell £12 billion of its United Kingdom annuity portfolio to Rothesay Life.

Under the agreement, the group's M&G Prudential arm has reinsured £12 billion of liabilities to Rothesay Life, which is expected to be followed by a Part VII transfer of the portfolio by the end of 2019.

Meanwhile, Prudential, under the stewardship of group chief executive Mike Wells, will focus its efforts on the Asian, US and African markets.

When the merger completes - subject to shareholder and regulatory approval - shareholders will have holdings in both Prudential and M&G Prudential.

He added: "The separation of the United Kingdom and European unit will enable each business to hone in on specific strategic objectives".

"In Africa, Prudential has established operations in five countries since 2014, with a substantial opportunity to serve the rapidly expanding customer demand for long term financial solutions", Prudential said. We believe this shows the United Kingdom market has matured, remains very competitive and can cope with this kind of change.

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